Whatever you call it — downsizing, rightsizing, workforce reduction, layoffs, or reorganizations, letting employees go isn’t easy, and most organizations make it the last resort. Usually, when an employer undertakes a workforce reduction, one of its primary goals is to cut costs. While workforce reductions can accomplish that goal, they might actually have the opposite effect if they are not carefully analyzed and planned out. HR Services often receives inquiries into staff reductions. In this article, we are doing a broad-brush stroke regarding things to consider when your organization may need to make some staffing changes.
While nothing can eliminate all the risks, careful planning and execution can minimize them. Employers can take several actions before initiating a reduction in force to protect themselves in the event of a lawsuit. The first is to make sure that the reduction in force is necessary. In analyzing the necessity of a layoff, you might want to consider several questions. What goals and objectives will be met by downsizing? Is the primary purpose to cut expenses and reduce overhead, to improve the quality of service, or to realign services and your business structure? If your main goal is to reduce costs, there are other belt-tightening alternatives to a straight reduction in force. Here are some options to consider:
- Reduction in Work Week – although workers won’t necessarily be happy about it, you may want to consider reducing employees’ hours or days per week, rather than laying them off outright.
- Wage Freeze – You could also cut costs by simply freezing or reducing employee wages and salaries. Although this may not be a popular solution, many employees will prefer it to losing their jobs entirely.
- Hiring Freeze – Employers should generally consider instituting a hiring freeze before and during any reduction in force. Not only will continued hiring create ill feelings among employees who were selected for termination, it could also provide terminated employees with the incentive they need to pursue a possible discrimination claim. For valid positions that need to be filled both before, during and for some time after a workforce reduction, consider instituting an internal placement system that attempts to fill open positions with displaced employees. Employers should only seek external candidates if the open positions cannot reasonably be filled with displaced employees.
- Other potential cost-cutting measures:
- Reassigning employees to other available positions, including having them take over work currently being performed by independent contractors.
- Offering voluntary, unpaid leaves of absence.
- Eliminating paid holidays or cutting back on paid leave.
- Restricting or eliminating overtime hours.
If you decide to move forward with a staff reduction, here are some areas to think about:
When determining which employees to lay off, there are several ways to approach the challenge, each with its own pros and cons:
- Seniority – One easy way to avoid age discrimination claims is to lay off employees with less seniority. The downside is that you may end up laying off valuable employees just to avoid discrimination claims from older employees. Employees with less seniority often can be women and minorities, so you may be trading one lawsuit (age discrimination) for another (race or gender discrimination).
- Performance – The easiest way to retain your best employees is to base layoff decisions purely on their performance. The drawback is that decisions are more subjective and therefore more vulnerable to charges of favoritism or discrimination.
- Compensation – Laying off the highest paid employees may be the most straight-forward way to cut costs. However, this approach has several problems. Your highest-paid employees are likely to be your older employees. Laying them off could look like a smoke screen for intentional age discrimination. This also could violate the Employee Retirement Income Security Act (ERISA) by denying their benefits. As a practical matter, many times your highest paid employees have the most knowledge and expertise, and losing them can dramatically impact the organization’s performance.
- Eliminate job functions – You can also target specific job duties for elimination instead of individual employees. This method may be the least prone to claims of discrimination.
If there’s a risk that employees will sue your company, ask your lawyer whether a severance package is a good idea, keeping in mind the requirements of both ERISA and the Older Workers Benefit Protection Act (OWBPA).
Thoroughly document the reasons for all layoff decisions, including:
- Board recommendations and minutes from the meetings (if applicable).
- Your general reasons for downsizing.
- Your criteria for choosing whom to lay off.
- The specific reasons for laying off individual employees.
You’ve made the tough decisions on what positions and staff will be eliminated with clear business documentation as to why the layoffs are happening. Now you have the difficult and potentially emotional task of telling your staff. This is often the hardest part.
Decide the details of the meeting. For instance, who will be delivering the message? When will their last day be? Will you provide severance? Do they have COBRA rights?
How are you going to tell them? Plan what you are going to say. Explain the reasons behind the downsizing. Be sincere; talk slowly and with genuine concern. Check in with them during the conversation, and by all means, make eye contact.
Anticipate questions such as: Who else is being laid off? Why me? Who is going to do my work?
After the conversation with the employees who will be leaving, you will need to communicate as quickly and openly as possible to those not being let go. It will be important to work collectively to reassign duties and build teamwork. Don’t be surprised if the remaining employees need additional training.
Understand that there will likely be a mourning period for the “survivors.” Remember to listen more and talk less, stay positive, minimize criticism, acknowledge and celebrate successes, encourage humor, maintain trust, and be honest.
One last thought as you move forward, be on the lookout for new leaders during the transition. Positive employees should be developed and encouraged.
Remember, HR Services is here as a resource for you during this tough process with honest feedback, sample letters, verbiage, policies, procedures, and a listening ear. You don’t have to go through this alone.
Trust members can contact Gary Casey regarding potential unemployment charges related to layoffs and help for your separated employees with job outplacement services at no cost to you.
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The information contained in this article is not a substitute for legal advice or counsel and has been pulled from multiple sources.